NCUA’s low-income designation hurts service members
For decades, mission-focused, low-income credit unions, or LICUs, have played a critical role by providing financial services to communities in need. In continuing their federally mandated purpose, these credit unions should be supported and allowed to thrive.
Unfortunately, a recent decision by National Credit Union Administration Chairman Rodney Hood to presume all active-duty military personnel as low-income — a consequential decision announced without the opportunity for any public comment or debate — threatens to undermine the very purpose of LICUs.
Ignore the rhetoric put forward by credit union lobbyists that this is about helping deserving service members. It’s not.
Instead, this move is nothing more than an early Christmas present to the nation’s largest credit unions, intentionally camouflaged under the fog of the fight against the coronavirus pandemic.
This arbitrary action will allow industry giants like Navy Federal Credit Union and PenFed Credit Union to qualify as low-income institutions overnight, and gain enormous and inappropriate regulatory benefits intended for true LICUs.
Here are just three examples of the gifts the NCUA can now grant to the nation’s largest credit unions that have nothing to do with helping the troops, and everything to do with expanding other business at these large credit unions at the expense of smaller institutions.
First, low-income credit unions are allowed to seek secondary capital investments from beyond their customer base. That means Navy Federal, which already has assets of $126 billion, can now turn to hedge funds to fuel its growth.
By law, credit union customers must share a “common bond.” Yet the only common bond with those outside investors is a thirst for tax-advantaged credit union profits.
Second, the NCUA move will grant mega credit unions expanded limits on nonmember deposits, allowing them to tap institutional investors and other outside players seeking to benefit from their tax-exempt status.
Lastly, traditional credit unions face a statutory cap limiting their ability to make business loans, a restriction designed to maintain safety and soundness, and focus on their mission of making consumer loans. With the new low-income designation from the NCUA, that cap disappears for these credit union behemoths. Meaning, young Marine recruits will not share in PenFed’s next multimillion-dollar real estate development deal.
None of these changes offers any tangible benefits to financially struggling service members. In fact, these gifts make it more likely that the mega credit unions will simply expand their nonmilitary revenues.
The only reward for troops — even for service members not considered “low-income” by any definition — is to be potentially stigmatized as “low-income” by a federal agency more concerned with boosting the tax-exempt income of the largest credit unions than helping the military communities its meant to serve.
If Washington truly wants to help struggling military personnel and their families now, there is a far better solution ready and waiting: Congress can expand service members’ financial service choices by incentivizing more banks to operate on military bases. All lawmakers need to do is offer banks the same access and terms they offer credit unions.
Despite a long and proud history of partnership between banks and the military, the Defense Department discourages banks on bases by forcing them to pay rent, while credit unions operate rent-free. It’s an uneven playing field made even more unfair when banks pay federal taxes that help fund the military, while the multibillion-dollar credit unions do not.
As the Senate and House begin their work reauthorizing the National Defense Authorization Act, lawmakers must make this sensible change and push back against credit union lobbying that only limits the financial choices for service members and their families.
Leveling the playing field and ensuring that the nation’s men and women in uniform are well served financially is not about politics. It’s about doing the right thing. The NCUA just did the wrong thing and used U.S. troops to shield the real intent.
Lawmakers should hold the NCUA and its leaders accountable. And ensure that military families, and Defense Department civilians who support them, finally get the full range of financial services options they deserve.
It should be an easy call.
Steven J. Lepper is president and CEO of the Association of Military Banks of America and a retired Air Force major general.